Sunday, July 27th, 2008

I didn’t originally intend it as such, but this is the third in a series of postings highlighting good economic development strategies. (The first covered Indianapolis’ amateur sports strategy and the second its motorsports strategy). Today I’ll discuss something I mentioned in passing before, the MusicCrossroads initiative.

MusicCrossroads is an organization whose mission is to advance the quality of life for all through the attraction, support and collaboration of leading performing art entrepreneurs and organizations. It is operated by the Indianapolis Convention and Visitors Association. It was conceived to boost a fledgling local industry group that consisted of the International Violin Competition of Indianapolis, the American Pianists Association, and the Heartland Film Festival. Yes, I know, that last one seems odd to me too. MusicCrossroads has successfully lured several organizations to the city including Music For All (formerly Bands of America) and Drum Corps International. It is also working to lure others to the city. Not only are these organizations re-locating, they are bringing their major events with them. Hence the ICVA’s interest.

There have been several major articles covering MusicCrossroads recently.

And the July/August 2008 edition of Halftime Magazine has a lengthy, glowing report on MusicCrossroads and Indianapolis as the center for music arts.

When you look at the Midwest, you’ll see Indianapolis as one of the handful of success stories. It is leading all major metros in population growth, actually exceeding the national average by 50%, it is one of only a handful of places with net domestic in-migration, it is creating jobs, it exceeds the national average for college degree attainment, etc. It is tempting to view success or failure as resulting from outside forces or accidents of geography. For example, Indy is the state’s only large city, is the state capital, is centrally located in the state with a one state metro area, etc. All true and all positives of the city.

But while some degree of luck can’t be discounted, the reality is that most successful cities made smart decisions along the way. Indianapolis certainly did. A sleepy state capital in the early 1970’s, it merged city county government and used sports to transform its economy and make it a national success story. There were a lot of other smart decisions and actions along the way too. One very recent one is the creation of MusicCrossoads.

This initiative is still in its early stages, but has all the hallmarks of being a winner for the city. Let’s examine some of the reasons why, and see the strong similarities between this and the amateur sports approach.

It is strategically positioned to target an under-served market niche. Indy is not trying to dislodge Nashville as the center of the professional music recording business. It isn’t trying to take on New York City as the capital of fine arts in America. Rather, by focusing on non-profit music associations as the core, it is trying to get first mover advantage and capture a white space opportunity. (Just like amateur sports).

It is targeting an industry that, while it does not employ a huge number of people at high salaries and features largely tax-exempt organizations, does stage many large annual events, the type of events the city would love to have utilizing the newly expanded convention center and Lucas Oil Stadium. For example, Drum Corps International has agreed to host its annual world championships in Lucas Oil Stadium for the next ten years. This of course has the tourism boost – in fact, I personally know people coming into town for the event and plan to show them around, assuming they aren’t in Bloomington the whole time – and lets the city start earning the return on the LOS investment. It is maximizing leverage for the city’s large investment in capital stock around events. (Just like amateur sports).

Unlike, say, a typical trade show, music events like the DCI world championship are activities that locals might be interested in attending. It is creating a community amenity, not just filling hotel rooms. It also is a culturally related item that raises the quality and quantity of what is on offer locally. This can be key in helping to lure more traditional businesses and “creative class” people who are interested in things like music. (Just like amateur sports).

It is an area where the city can built a true cluster or, as Warren Buffett would call it, a “wide moat” business. That is, it is something where the city can create something with a lasting, sustainable advantage. Success always attracts competition. Wide moat businesses have a sustainable competitive advantage that enables them to stay ahead of that competition. In this case, potential sources of a wide moat include the facilities and event capabilities of Indianapolis; an emerging cluster of related industries that can lead to a base of skilled labor, idea sharing, resource sharing etc. (though notably spatial co-location alone is not a sufficient condition for cluster formation); and the holistic value added support coming to the organizations through the ICVA, the IU School of Informatics, etc. (Just like amateur sports).

It is a difficult to offshore business, making it largely immune from competition from low cost foreign competitors, at least in some regards. (Just like segments of amateur sports).

The future of this remains to be seen. Execution is obviously critical. There has already been one stumble in that Lucas Oil Stadium is not going to be ready for the drum corps inaugural event, a big disappointment to all I am sure. And they picked a name whose domain was already registered (musiccrossroads.org is owned by some Christian music group). Plus there will surely be other cities that become aware of this and start to copy it, just as every city now pretty much has some type of sports event program office. If another city attacks hard before Indy gets its business fully established, Indianapolis could lose out. Obviously the MusicCrossroads backers have made the calculated decision to go public with a big marketing campaign about this, judging the marketing value of the exposure worth more than the risk of forfeiting their trade secrets. Time will tell if that was the right gamble.

Again, let’s recap what makes a successful economic development strategy. It is combination of the right strategic positioning with a set of unique capabilities that create sustainable competitive advantage. This of course as to be paired with superior execution. The contrast of the Indianapolis case studies with what I see far too often, namely undifferentiated me-too strategies chasing the hot sector du jour, is amazing.

Places like Silicon Valley with high tech hardware and software, Chicago with financial services, and San Diego with bioscience imply a model where cities strike gold with one industry specific home run. That works in some places, but it can be a disaster as well, as Detroit is finding out. And it can be very hard to dislodge the top players in industries that everyone wants a piece of. Again, it’s not that I think cities should ignore life sciences or high tech. But except for a very few places, I don’t see them as the only places a city should be hanging its hat. Looking to complement that with a portfolio of smaller industries where a city can be the Silicon Valley of that industry, and where the Jack Welch test of being number one or two in an industry is met, creates a more durable, sustainable, balanced economic growth platform.

Another issue related to this is the exposure of our city to young, educated people. If the dream of these young musicians is to “make it to Indy” it positions us in their minds as a place they aspire to reach. We can only hope that these young go-getters are impressed enough to return and bring their contributions to our city when they enter their professional lives. Most of the kids who participate in music programs are well-rounded individuals (much like the FFA crowd the ICVA brings to town) and represent a intellectual class that we can only hope someday call Indy home.

Urbanophile: With all of Detroit's woes of today…it also survived the woes of the 70's and has been the "Silicon Valley" for automobiles longer than Silicon Valley has been around. Detroit got big, fat & happy and is paying the price. Time will tell whether it survives this round of woes, but am thinking it will.

“Where’s the beef?”There’s always some money in visitors, even if snot-nosed and light-walleted FFA kids, even if not the optimal amount of spending. Is there really an opportunity cost here?

Many of these band folks will form a favorable impression of Indy in their impressible years, which could translate into future visits. For many, the circle city might not otherwise even be on the radar. Moreover, band parents seldom stray far from the flock, and the demographic skews middle class.

The Volt and whatever else may save Detroit, after a fashion. But look at Detroit’s tentacles like Anderson, Flynt and Toledo, a few of which have been beyond hope for years. Will it really pay off to be an ancillary hub of life sciences or anything else?

Indiana investing so much money in the Honda plant in Greensburg and Louisville’s excitment over Ford keeping plants open there are surface wins. Visit Greensburg in 15 years and see what you find. I really can’t blame Louisville in try not to have the plants shut down but the result will be the same for that city too.

Investing in that industry has plenty of history lessons. Ford lost 9 billion dollars in one quarter! I don’t understand why Indiana and Louisville would not see what is going to happen in the long run.

If all American auto makers stopped making cars today, you will still see dealerships full of unsold cars 2 years from now.

I think for the most part, investing in the auto industry actually has been a very good investment for the states/locales involved.

They not only provide the jobs that come with the project but the multiplier effect is 2-3x’s that job number as a result of the suppliers/services that tend to accrue to those types of projects. I think the multiplier for auto related investments might be among the highest there are in the econ dev game.

US Auto manufacturing has been through difficult times in the past; this is obviously a difficult time. Time will tell, but in 15 years these plants will likely be around.

I should add…they are the only ones to have built a plant in a union stronghold. It was in Greensburg, PA, south of Pittsburgh.

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About the Urbanophile

Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.